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Oct 08

Exiting Long $QIHU, $KORS, $BCR, $SSNC, $ILMN, $GMCR, $ICON

As markets came under further pressure throughout the day it was clear we’d need to pack our case for a trip to Stop City with plenty of exit signals ready to trigger. The good news is most of them are trailing stops rather than stop losses. We have ridden some huge momentum names this year, and as we’ve often remarked, when they come undone they can often all move at once and with some force as they become highly correlated in down markets. When they do, we’re ready to act.

When you’re a trend follower you know you’ll be exiting when the trend for your timeframe is invalidated. It means you’ll never be getting out at the top. Ever. You’ll have to let something come back in order to know it’s over. So when you get that exit signal, by definition it means it’s already been doing some damage to your p&l. Wouldn’t you want to put an end to that?

Of course. So you take the signal. Every single time. When it comes to exits you don’t let the fact of whether it’s a winner or loser affect your judgment, it’s either a valid position or it’s not. When it’s not, you exit no matter what the P&L is. When it’s over, it’s over.

We got seven signals tonight, and we’ll execute them all at Wednesday’s open. As of Tuesday’s close they were showing the following returns:- $QIHU +72.0%, $KORS +21.4%, $BCR +9.4% $SSNC +9.9%, $ILMN +5.0%, $GMCR -5.5%, $ICON -6.2%.

Here are the signals:-

Qihoo 360 ($QIHU) +72.0%. Original 6/10 entry post here.

At the weekend our weekly review mentioned $QIHU had an attractive risk/reward set up for further upside to an already hugely successful position. It just shows how quickly things can change. On a longer-term basis this uptrend is intact, but for our own purposes today marked a 5-week low, a break of an ascending trendline, a break of the 50-day MA, a break of an ATR trailing stop and price stop we’d been using, and all on increased volume. That’s a lot to make excuses for. We’re happy to step aside and put our biggest winner this year in the books.

AlphaCapture

 

Michael Kors ($KORS) +21.4%. Original 5/6 entry post here.

It took a while for this to get going again, having faked us out earlier in the year, and until recently $KORS had continued to perform strongly. The pullback from the highs was fairly swift, as was the attempt to reverse it, putting in place the potential for a head and shoulders top if you’re in to that sort of thing. Today’s downdraft looks pretty brutal on the chart, taking out our trailing stop, as well as a previous one and the 50-day all at once.

AlphaCapture

 

C.R Bard ($BCR) +9.4% (incl 7/17 div $0.21). Original 5/13 entry post here.

$BCR had put together a fairly consistent trend since the breakout that triggered our entry. The failure to recover a week or so ago, as it had done on numerous occasions previously, was the first sign something bigger may be underway, and although it has retreated in a far more genteel manner than the high-beta momentum plays elsewhere in our portfolio, it has nonetheless gone far enough to trigger an exit.

AlphaCapture

 

SS&C Technologies ($SSNC) +9.9%. Original 6/10 entry post here.

$SSNC has been working from the beginning but not without taking us through some volatile periods with several successful tests of its 50-day. It had again looked as if it might survive, sitting just above our trailing stop and the 50-day, but sliced straight through both of them today with ease.

AlphaCapture

 

Illumina ($ILMN) +5.0%. Original 6/25 entry post here.

$ILMN had been cooking on a slow burn for us never quite following through on its numerous breakouts from consolidation ranges. Today’s move was a fairly straightforward breach of our trailing stop at a higher low.

AlphaCapture

 

Green Mountain Coffee ($GMCR) -5.5%. Original 8/2 entry post here.

This is a very marginal break of our stop, and is an example of why I sometimes express the need for a “clean break of” a given level, but in this case it coincides with a 5-week low and an ATR trail, and we’re happy to exit.

AlphaCapture

 

Iconix Brand Grp ($ICON) -6.2%. Original 9/5 entry post here.

$ICON had a textbook setup but never broke out with any conviction and has now invalidated with today’s break.

AlphaCapture

 

 

 

 

 

 

11 comments

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  1. Quentin

    Hey Jon nice site, on your Qihu trade did you add scale in any other positions on this trade?

    1. Jon Boorman

      No, it never consolidated long enough to add to the position. Closest it came was right at the end where I mentioned it looked ready to move higher again after the 3-4 week triangle consolidation but it never quite triggered and sold off this week.

      1. quentin

        Thank you for your reply, I think I see what you are saying…. I am currently testing and finding my niche on how to add additional entries when I am at break even and playing with the markets money from my research this is what creates the big profits for trend followers over the years. What has your experience been like on adding additional capital to a position and how do you determine when to add to the trend?

        Regards,

        Quentin Walker

        1. Jon Boorman

          I add to winning positions. I add on strength, not on weakness. The simplest way to picture how and when you should add is to imagine you don’t already have a position. What would make you enter afresh? Whatever your entry rationale is; a 52-wk high, a 50-day high, emerging from a consolidation within an uptrend etc, a repeat of that setup and trigger is your opportunity to increase the position. I then use the same stop for the whole position.

          1. Quentin

            Great, thanks for the advice so by using the same stop you basically trail it up according to the price such as the atr trail technique that you mentioned earlier

  2. Jim

    Jon,

    Do you give any judgement at all to positions that may close .5% above their set stop, but may have suffered pretty drastic moves in a few day period?

    For example, if you had a stop at 50, but a position closed at 50.50 but the trend is heavily downward as has been moving in large percentage gaps, will you try to protect capital by selling ahead of the stop?

    1. Jon Boorman

      I won’t sell ahead of a stop, it’s dangerous to anticipate a signal, but in the circumstances you describe you may find if you have an ATR stop that kind of move may trigger it before you get to your existing price stop. That’s exactly the kind of move where they can help protect you. I like to think of it as detecting when something has changed its behaviour, it might still be in that trend but it’s not acting how it was before, it’s a ‘step aside’ signal. I’m happy to get out of the way and re-enter if it should setup again.

      1. Jim

        Is there any documentation on your site to how you use ATR on your positions?

        1. Jon Boorman

          I haven’t posted on it, but it’s something I’ve replied to in comments. I’ve stated it’s one of those things where it’s really down to personal preference depending on your risk tolerance and timeframe. This link goes through some examples. http://www.incrediblecharts.com/indicators/atr_average_true_range_trailing_stops.php A 3x ATR is standard for most people, using 21-day, for long term trends you might find higher than that more appropriate. For some stock trends I’ve used as high as 6x ATR, 100-day. In Andreas Clenow’s book ‘Following The Trend’ for replicating CTA’s performance in futures he uses 3x 100-day. I’ve heard some CTA’s use 12x ATR. You need to find what’s right for you.

          1. Jim

            So the rationale is (using 3x ATR) if a stock moves more than 3x ATR in one day, despite any kind of trend, something is not acting well and someone following such a stop would exit? It is something that is evaluated daily.

          2. Jon Boorman

            Yes, but not just that it moves a certain amount in one day, can be used to show adverse movement (a given multiple of ATR) from the highest close or highest high of the last x days. Try experimenting with it on some charts and get used to the look and feel of it, how and when it would have got you out, be liberal with it, don’t get too specific (4.55x) otherwise you will be optimizing which is the death knell of any system. You’re not trying to achieve what gives you the most winners, you want the most effective.

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